A 67-Year-Old Solo 401(k) Holder Just Found $234,000 of Additional Roth Conversion Headroom Most Self-Employed Retirees Miss

A 67-year-old consultant filing a Schedule C with $185,000 in net self-employment income and a $1.4 million pre-tax Solo 401(k) sits in an unusual planning window. She intends to keep a handful of clients through age 70 before fully stepping back. The standard advice for this profile is to begin partial Roth conversions from the pre-tax balance and pay tax at today’s brackets before required minimum distributions hit at 73. The advice is fine, but it does miss the larger lever the Solo 401(k) structure provides.

The Stacked Contribution Capacity Self-Employed Retirees Overlook

A Solo 401(k) holder operating as a sole proprietor wears two hats: employee and employer. The IRS lets you contribute under both. For 2026, the employee elective deferral limit is $24,500, the catch-up for participants age 50 to 59 and 64 or older is $8,000, and the overall annual additions ceiling is $72,000 before catch-ups. The employer side, calculated as roughly 20% of net self-employment earnings after the deductible portion of SE tax, supplies the bridge between the deferral and the overall cap.

On $185,000 of net SE income, the employer’s profit-sharing capacity runs $34,000 to $37,000. Stack the layers: $24,500 deferral, plus $8,000 catch-up, plus roughly $35,000 from the employer side. Annual capacity lands around $67,500 to $69,500. Across the three working years from 67 through 69, with inflation adjustments to the deferral and catch-up limits in 2027 and 2028, the cumulative figure approaches $234,000.

Why Roth Designation Rewrites the Outcome

SECURE 2.0 Section 604 eliminated the requirement that employer matching and profit-sharing contributions be made on a pre-tax basis. Every dollar in the stack above can be designated Roth at the moment of contribution, provided the Solo 401(k) plan document permits it. Older boilerplate documents often do not, and the recordkeeper will default the employer piece to pre-tax unless instructed otherwise.

Routed as Roth, those dollars grow tax-free, carry no RMD at 73 (Roth 401(k) accounts became RMD-exempt under SECURE 2.0 starting in 2024), and pass to heirs without an income-tax tail. Routed pre-tax, the same money piles onto her existing $1.4 million balance, lifts the RMD divisor at 73, and inflates ordinary income for the next two decades.

The upfront cost is real. On $185,000 of SE income, she sits in the 24% federal bracket, which runs from $105,700 to $201,775 for single filers in 2026. Paying 22% or 24% on the seed rather than the harvest is the trade. With core PCE near the top of its 12-month range and 10-year Treasury yields near 4.6%, locking in today’s schedule against an uncertain future code has independent value.

The Cash Balance Overlay

A Solo 401(k) can pair with a second plan. Layering a Cash Balance defined benefit plan on top, common in high-income consultant practices, opens additional pre-tax sheltering capacity of $200,000 or more, depending on age and compensation. That bucket stays pre-tax to compress 2026 taxable income, the Solo 401(k) goes Roth to build the tax-free side. The two plans solve different problems in the same year.

Three Actions Before December 31

1. Pull the Solo 401(k) plan document and check two clauses. Does it permit Designated Roth employee deferrals? Does it permit Roth treatment of employer contributions under SECURE 2.0 Section 604? If either answer is no, the provider needs to amend the document before year-end. Most prototype plans from major brokerages have been updated; custom-drafted documents often have not.
2. Calculate net SE income in November while there is still time to act. The employer profit-sharing contribution is capped at roughly 20% of net earnings from self-employment after the deductible half of SE tax. Run the number with your bookkeeper while there is still time to adjust billing or expense timing, then fund the contribution in December once the figure is firm.
3. Compare the Roth designation cost against your projected RMD bracket at 73. A $1.4 million pre-tax balance growing at 6% for six years lands near $2 million. The first RMD divisor of roughly 26.5 pulls about $75,000 of taxable income in year one. Add Social Security and any consulting residuals, and the 24% bracket fills quickly. If the combined figure pushes above the first IRMAA threshold for single filers, Medicare premium surcharges stack on top of ordinary income tax. Paying 22% or 24% now on Roth-designated dollars usually beats paying the same rate plus IRMAA later.